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Jessica Looman headshot
Jessica Looman

The Department of Labor is proposing revisions to its guidance on how employers can determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. 

According to the Labor Department, the ultimate test is whether the worker is “economically dependent” on an employer under the totality of the circumstances test, which measures six factors. According to attorneys at Littler, those factors include:

  • Opportunity for profit or loss depending on managerial skill
  • Investment by the worker and the employer
  • Degree of permanence of the work relationship
  • Nature and degree of control
  • Whether work performed is an “integral” part of the employer’s business
  • Skill and initiative.

Announced Tuesday, the rule would rescind the 2021 independent contractor rule

“The department is proposing this rule to replace the rule adopted by the last administration, which legally risked increasing instead of reducing misclassifications because it narrowed the facts and basis for determining whether a worker is an employee under the FLSA,” Solicitor of Labor Seema Nanda said at a press briefing Tuesday morning. The 2021 independent contractor rule, she added, ”is out of sync” with what the courts have been saying for decades.

The misclassification of employees can cost employers money. For instance, a Lansing, MI, adult foster care company’s practice of misclassifying its residential healthcare workers as independent contractors will cost it $94,000 in back wages, the Labor Department announced previously. And it also hurts workers, officials said.

“The misclassification of employees as independent contractors does hurt workers, their families and businesses that follow the law,” Principal Deputy Wage and Hour Administrator Jessica Looman told members of the media, adding that misclassifying employees as independent contractors prevents employees from receiving the benefits to which they are entitled.

“To be an independent contractor under the Fair Labor standard, the worker must be in business for themself,” Loomis said.

In addition to rescinding the 2021 rule, the DOL said that the proposed rule would:

  • Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
  • Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.  
  • Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
  • Revert to the longstanding interpretation of the economic reality factors. Those factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
  • Assist with the proper classification of employees and independent contractors under the FLSA.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh stated in a press release. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

The full text of the proposed rule, as well as information on the deadline for submitting comments and the procedures for submitting comments, can be found at The 45-day comment period for the proposed rule will close at 11:59 p.m. ET on Nov. 28.